[UPDATE NOV 2016: Royal Bank of Scotland at last agreed to set aside £400m to compensate up to 12,000 small business customersthat it “allegedly mistreated” in the wake of the financial crisis. Leaked RBS documents confirm that their "Project Dash for Cash" incentivised staff to search for companies that could be restructured and have their assets sold off, or have their interest rates bumped up. The documents also show that where business customers had not defaulted on their loans, bank staff could find a way to "provoke a default". In 2014 RBS said the department responsible, the Global Restructuring Group, was not there to make a profit. Weeks later, as the scandal was exposed, the then RBS chairman Sir Philip Hampton was forced to admit that it was.]The banks' Interest Rate Swaps scam ruined businesses across the UK. Having explained how 'interest rate swaps' work and why they were sold in previous posts, we asked the undercover banker Honestly Banking to tell how the banks have managed to get themselves made judge and jury in the processing of compensation claims.

Fantastic, amazing, a triumph! That's really the only way you can
describe the FCA review of Interest Rate Swap mis-selling. The wonderful thing
about it is that the banks that did the mis-selling have got to design, run and
review the scheme. Yes that's right, the very banks that did the mis-selling
are conducting their own 'independent' review. What's even better is that the
'independent' oversight is by litigation lawyers who are in the pay of the
banks[1]
and will use the review process to gather evidence that can be used in
litigation against the very people the banks originally mis-sold to.

Admit it, you've got to admire us clever bankers. We've even persuaded the
FCA to state publicly that those businesses who have been devastated by the
mis-selling of swaps don't need to take any legal advice![2]

“The IRHP
review has been set up to deliver fair and reasonable redress to customers
where appropriate without them needing to hire lawyers or claims management
companies”

FCA advice

The mis-sale of the Swap went so well first time, why not remove legal
representation from the clients as well? What’s better is the banks got a
top-secret agreement with the FCA[3],
so there’s no oversight of the cosy arrangement we’ve got!

Banks decide who is eligible for redress:

Let's look at how this shrewd scheme works. Firstly the bank decides
whether you’re eligible or not to use the scheme. Sneakily the banks use
different criteria than normal to exclude those that might cost us a lot of
money and the FCA accepted it[4]
- result! We decide that you’re 'sophisticated' so you're stuffed – get out and
take your swap with you (and don’t dare cancel that direct debit!). Good that
gets rid of some of the problem. What's even funnier is we've got the FCA to
state that these clients can use the FOS (ombudsman) for redress – but actually
if they have more than 10 employees (which is probably why they were deemed
‘sophisticated’ in the first place) they are not eligible to use this either[5]
- a stroke of genius!

“Independent” case reviews:

Then we get our 'independent reviewers', giant law firms, to deploy
their experienced litigators to cross-examine the clients[6],
sorry, not supposed to do that, 'interview' for several hours. We don't give
them any of the bank's side of the story, but we get them to spill the beans
and get them to admit that they really wanted the Swap and to incriminate
themselves so that we can use the recordings in litigation if needs be. Our
clever PR people have decided to call this an 'open transparent' process and
not to bother to explain the legal ramifications to the mis-sold customers, who
have been told not to bother with lawyers after we suggested it to the FCA[7].

“Independent” assessors:

Once the reviewers have got what the evidence need, we then use our
army of 'independent' assessors to review the cases and decide if and what
redress is due. We've hired in these ex-bankers, many of whom have been made
redundant on day rates of £1000+ a day[8],
so they had better reach the right conclusion or we will kick them out.
Cleverly our HR people have made these assessors set up Ltd companies, so we
can limit our liabilities if they are found to have been unprofessional or
incompetent.

Redress and Compensation:

We are really pleased with the redress we are giving out. We've taken
a leaf out of the best high street retailers book and try and give them a
replacement product[9]
- what's even funnier is that it's often as bad or worse than the original
swap! And it has maybe double the profit in it for us! Also the client who we sold the wrong product to has to accept our advice again - it went so well first time! We cooked up a wheeze whereby we can ensure these still have a load
of break costs and might not be needed anyway. We've also conveniently
neglected to build in an appeals process[10],
so the client has to accept our findings. Aren’t we smart?!

Delaying claims beyond the limitation date:

Another tactic that's been working well is delaying the claims of
customers so they pass the limitation date[11]
where they can take legal action against us. It's been a real winner here;
especially since the FCA have supported us by telling clients they don't need
lawyers. Thousands have fallen for this trick! Of course some will want to go
to court, we're not stupid, so we will settle the strong cases on the court
steps (there goes another gagging order![12]),
but we will let the weak ones go to trial, using the ‘evidence’ we squeezed out
of them during the ‘review’ process and then we'll get our legal chaps to make
mincemeat of them and get a precedent in our favour. The other good thing is
those dear folks at the Financial Ombudsmen really haven't got a clue about all
of this, so they are using their default client letter[13]
that find in our favour.

Gagging orders:

As you would expect it's not all been easy. We've had to pay out a few
times, but we've used gagging orders specially made by our legal friends. The
FCA doesn’t allow us to do this as part of the redress scheme, so to get round
this we just take this client out of the scheme. We think so little of the
clients anyway, we don't mind chucking a bit of extra money to shut them up.
We've planned for this already, but we are a bit worried that the stockmarket
will be spooked if they know the real size of our provisions[14].

Consequential loss compensation:

Actually we are pretty worried about the consequential loss claims –
i.e. compensating clients for anything from loss of profits to the total
collapse of their businesses. But the FCA is being very helpful[15],
doing their best to discourage consequential loss claims citing time delays,
complexity and emphasising the general futility. The FCA has also given us a
get-out-of-jail card saying we don’t have to compensate investors and
guarantors – so your friends and family who put money into your business can
get stuffed. It’s times like this you
know who your friends are. Our mates at the FCA are trying to keep compensation
down to us returning interest payments (minus interest payments that would have
been paid had we sold the client a less dodgy loan at the time). If we were
selling dodgy brake pads that made clients’ cars crash, the FCA would tell the
client to forget their wrecked car and injuries and just accept a new set of
brake pads from us as compensation.

The Vampires

If there’s a business that’s causing us lots of trouble, or they have
some lovely assets we fancy, we have a terrific plan. Firstly we make the
business breach some of their lending covenants by using hidden calculations
(often in their Swaps) and then put the distressed business into what’s known
as ‘business support’ or ‘global restructuring’ and then we use team of
specially trained ‘vampire’ bankers to suck out all of the value. Once we’ve
extracted as much money as we can, we get our tame valuers to down value the
business - we then dispose of it at a profit![16]

Organised resistance:

Those pesky people at Bully Banks[17]are a pain. They keep on pointing out our dirty tricks and talking to the press
and politicians. Looks like they rumbled us on embedded 'hidden swaps at
Clydesdale'[18],
but hopefully we can pull a few strings to keep the lid on that. We also got
some flak as we've only settled 10 cases after 14 months of 'redress'. The FCA
stupidly said it would take 12 months, but since we decided when the clock
started we should be ok. We've also been hiring people who are causing us
trouble - the FCA has proved a good hunting ground, our mate Hector Sants has
their mobile numbers and if we offer them enough they will move and keep stum.

Bonuses all round!

All in all, the swaps thing has worked well. We've made loads of money
out of it[19].
Some bad publicity, but what do you expect? The FCA have been naive and
compliant and none of us are in jail. We're still the masters of the universe!
- Bonuses all round!